Headline / October 2019

Weathering Tough Conditions

With more than 200 subsidiaries and affiliates, Jakarta-listed Astra International – which had a market capitalization of Rp 262.12 trillion ($18.5 billion) as of Sept. 25 – is engaged in the automotive, financial services, heavy equipment, mining, construction, energy, agribusiness, infrastructure, logistics, information technology and commercial property sectors.

The company, 50.1 percent owned by Hong Kong-based Jardine Matheson Holdings Limited, has tapped the digital sphere with significant investments in Indonesian unicorn Gojek.

In a strategic collaboration, Astra and Gojek formed a joint venture company to provide a fleet for the latter’s online-based ride-hailing service GoCar. This followed a $100 million equity investment by Astra in Gojek in January this year, which raised the diversified conglomerate’s total investment in the unicorn startup to $250 million.

However, Astra has apparently not stopped seeking more investment opportunities in the digital sector, as it is reportedly looking to acquire seed and pre-seed stage startups, DealStreetAsia reported, quoting Astra International director Paulus Bambang Widjanarko. Paulus was quoted as saying that Astra was close to acquiring a local startup in the logistics business.

It is not surprising that Astra seeks to further diversify its business. According to the group’s most recent financial report, its business in the automotive sector had been impacted by slowing demand in the first half of 2019, while lower crude palm oil prices also dragged down overall earnings.

Astra saw its profit decline by 5.59 percent to Rp 9.8 trillion in the January-June period.

Despite retaining its crown as Indonesia’s largest automotive distributor, controlling 53 percent of the market, 75 percent of the motorcycle market and 36 percent of the heavy equipment market, the overall slowdown in the country’s automotive sector adversely impacted Astra’s performance.

“Astra’s revenue grew by 3 percent, but it couldn’t offset the overall performance,” Astra International president director Prijono Sugiarto said during a public exposé at the Indonesia Stock Exchange (IDX) in Jakarta on Aug. 26.

Prijono said despite the company having managed to increase its share of the automotive market to 53 percent in the first six months, from 48 percent in the corresponding period last year, it still suffered a 6 percent decline in car sales volume, representing about 253,000 units.

The nationwide wholesale car market declined 13 percent to 482,000 units in the same period.

“Adding to the challenges is the discount price war in the four-wheeled vehicle market. Indonesia produced about 1.1 million cars for the domestic market and 200,000 for export. It is a total of 1.3 million units, while the installed capacity [of car manufacturers] actually stood at 2.2 million units. I think the most important aspect of this is that we must become the manufacturer with the lowest cost of production,” Prijono said during the event.

At the other end of Astra’s business spectrum, its palm oil producer arm has suffered a sharp decline in profit. Astra Agro Lestari reported a 94 percent drop in net income to Rp 44 billion, primarily due to lower crude palm oil prices.

“Overall, commodity prices have not been good,” Prijono said.

Luckily, Astra’s other businesses performed well, so they could prevent a further drag on the company’s earnings.

Net income from the group’s financial services division increased 32 percent to Rp 2.8 trillion, mainly due to fewer nonperforming loans, lower loan-loss provisions and a larger loan portfolio.

Bank Permata, in which Astra has a 44.56 percent stake, saw its net income jump more than 146 percent to Rp 711 trillion. The lender also saw steady growth of 4 percent in outstanding loans to Rp 107 trillion.

Most of the group’s other financial services arms, from automobile and heavy equipment financing to general and life insurers, posted healthy earnings.

Heavy equipment distributor United Tractors, in which Astra has a 59.5 percent stake, reported a 2 percent increase in net income to Rp 5.6 trillion, thanks to improved sales of construction machinery. Astra also enjoyed additional revenue from its newly acquired gold mine.

Its infrastructure and logistics division contributed Rp 85 billion to overall earnings, which represented a significant increase, as Astra started enjoying additional revenue from its newly acquired toll roads.

The group, through Astra Tol Nusantara, is upbeat about plans to operate up to 500 kilometers of toll roads in Indonesia by 2021, from this year’s target of 350 kilometers.

In May this year, Astra Tol Nusantara acquired 44.5 percent of PT Jasamarga Surabaya Mojokerto, which operates the 36.3-kilometer Surabaya-Mojokerto Toll Road in East Java. Astra spent Rp 1.7 trillion on the acquisition.

The toll road added Astra’s contribution to the Trans-Java Toll Road to 338.6 kilometers by June this year. The group still has ongoing construction on parts of the Kunciran-Serpong Toll Road west of Jakarta, set for completion by the end September, or October at the latest. In total, the diversified conglomerate has acquired four toll road segments over the past nine years.

Prijono said the company believed the private sector needed to be actively involved in the government’s infrastructure push.

“We are interested in investing more in the infrastructure sector, especially in some of the businesses the government cannot handle,” he said.

Astra has also invested in other infrastructure projects currently under construction, including a 2 x 1,000-megawatt power plant in Central Java, in partnership with Japan’s Sumitomo Corporation and Kansai Electric.

Prijono said despite the challenges Astra faces in its various businesses, it remained upbeat about prospects in the Indonesian economy. This was also evident from the interest shown by other global automotive players in the local market.

“We still see great prospects in Indonesia’s economy. Based on our observations, global companies from China still dare to enter Indonesia’s automotive market. They have installed manufacturing facilities to produce between 120,000 and 130,000 cars per year, despite their sales only amounting to 20,000 units. We, as an existing player, are committed to spending enough capital to ensure the sustainability of our business,” he said.